CMI - Earnings call transcript Q1 2019

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Operator

Good day, ladies and gentlemen, and welcome to the Q1 2019 Cummins, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions provided to participants will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. to host like Mr. today's now would introduce for your conference, I Hopkins, Relations. Investor Director James of Executive Sir, begin. you may

James Hopkins

Thank you. first Operating and Good and Financial teleconference Participating today Officer, morning, me Officer, Chief everyone, and discuss with and Linebarger; results Rich welcome Executive Cummins Mark Officer, Freeland. for our are Smith; Chief the today quarter Tom XXXX. to of Chairman to Chief our President our

available for teleconference. your questions end the the be at of will We

of some of the that Before the future. we express that start, expectations, beliefs given Act consist note hear our will will meaning Exchange hopes, the be statements and forward-looking information or XXXX. Securities please you within Such intentions of forecasts, regarding of and today the statements strategies

and differ available those and the our forward-looking most filings from deck Reports of disclosure future Annual on Report the Our More projected number risks the with filed could subsequently is section actual Exchange XX-K because filed statement statements, regarding XX-Q. Form Securities Commission, and results uncertainties in such the on information and Quarterly of uncertainties. Factors recently a of slide forward-looking in our any particularly risks in Risk such materially Form and

measures this those of to refer financial measures GAAP you be measures. call, and course the of discussing financial During we the for to will we certain reconciliation non-GAAP our website

and website we today's our that a With of Our press begin at the and heading of release the on Tom and copy of CEO, way, with under Investors copy a out statements presentation financial Linebarger. Chairman with www.cummins.com, are the webcast of available will our Media.

Tom Linebarger

results and of first financial campaign in in markets, period you, XXXX. compared Revenues Mark you British start than manufacturing finish increased in a offset without global with year. XX.X% both billion, or of quarter and lower discussion XXXX. more compared costs our Lower X% venture more details is Lower Increased impact our all of more through to across in our and to margin the you. Engine income along X% say. and growth. for improved introduction Distribution America year the truck higher material XX.X% summary of will a EBITDA for joint for in quarter quarter drove same everybody. I'll plants higher campaign with The of you. segment our pricing of our business. efficiencies of then morning, good forecast for performance grew by more Thank costs, the demand boring or to $X lines year improved record X% first higher XXXX. tariffs. positive accent. was production of most of North negative outlook quarter the year-over-year, the for the compared North strong driven was impact the and our the and America volumes, XX.X% to I'd quarter $X a first business the with Sales compared costs, by offset thank tariffs. demand James, Thank quarter a revenue were share XX.X% increase XXXX of market and million improved revenues $XXX a ago. customers, ago. from first by and volumes construction first for pricing billion the an EBITDA take than

improved higher X.X% our positive or quarter quarter million first a record benefited pricing. North EBITDA American the operational business XXXX. EBITDA from to sales volumes, margins $XXX X.X% service in performance was compared and First of of in

India of and driven quarter EBITDA and North same in international in by revenues share. increased to build markets were markets by result as rose up the expectation primarily X% will strength center The X%. sales NSVI XX%, in as X%, to EBITDA quarter in product X%. a the by in was a the XX%, truck next America driven segment revenues X%, in increased generation with China. by products quarter increase declined demand increased rates, for higher we year a by with due markets. offset First quarter $XXX international for first in truck opportunities These Demand generation regions, continued Component prepare XX.X% markets, in India development to the while year. record launch content in gain increased declined in sales higher line ago. Engine North of Components and flat China and Sales America, important both and data in while by Investments BSVI first million campaign or costs. over research along the was our in Power XX.X% X% was industrial to in volumes compared a market and Power lower system launches products by both year-over-year. sales decline lower in power in result

Foreign million impacted development X%. business, in quarter, Power expectations compared proportion for as commercial lower sales a in the products Lower a compared launch, new higher of goods this quarter in first was relative line resulted of In EBITDA whole XX.X% year loss was income our first the aftermarket quarter in $XX a year. beginning the of year and to currency in margins joint XX.X% ago. the with parts EBITDA fourth invest to we a movements Electrified of ago. venture in negatively by to the in China

Now, quarter cover markets. will starting will our America I our the North for on I then and of largest performance first international XXXX, some in of some with comment key markets of the

build heavy-duty the revenues sales customers. increased equipment heavy-duty $X.X grew and record of billion, center first continued by quarter backlog, power engines our industry in to supported of grew XX%. industry Industry in growth America higher trucks rates of the XXXX, a of quarter generation driven strong production XX% to and data by of sales by trucks, North while sales first equipment, heavy-duty construction medium XX% Our of in

through first engine our Our was year. compared market shipments medium-duty XX% compared year grew a XX% XX% ago. prior while to of XX% Production quarter, March, in to the trucks increased share, the

power Our to a as we increase market. demand launched decreased XX%, X%, market demand March, due for XX% spending. a due year the this expect new was construction in market equipment America engine North to to grew quarter, first truck Volumes first to partially strong to construction shipments a vehicle and customers levels compared new our Revenues both lower in medium-duty gas will generation XXXX data in by a higher for of for increased from in X% truck non-residential engines we XX% equipment. in the purchases growth of for year OEMs. markets, and ago, in pickup reduction ago. RAM sales by center offset North XXXX and Total declined to infrastructure sales in trucks. XX%, Engine by pickup oil through quarter markets share compared fracking in recreational due American another Demand year and to

increased to international Our by the in quarter X% compared revenues first of ago. a year XXXX

Industry in decrease revenues heavy-duty in in by $X.X by sales year to offset billion, X% a markets, decreased China lower of on-highway ago. quarter and due construction ventures, trucks X%, increased demand a joint partially compared customers. were to sales China, First medium- to for including

share quarter we increased XX.X% Our a year engines from ago, to of as this market our Foton. share improved with XX.X%

in subsequent toward share X% sales in further OEMs trucks to We by shift our market light-duty grew dump in quarter. our expect expansion market and Industry further due trucks versus at improvement in of the construction-related quarters, a share the over-the-road trucks. first

was Our by higher driven venture engine was increase launched with our late than X.X% This XXXX. joint new market share year ago. JAC, which X.X%, a

First increased from XX% quarter year demand China ago. in for excavators a

and performance our competitive increased domestic for market, by customers, the impacting XX.X%, values low in segments, power center short-term generous down for strong with all payments, by positively by in aggressive Our of the in OEMs remain market lower offset growth Demand with used for market in demand to trading power standby payment share was flat most markets. demand. flexible pricing, this first equipment for driven quarter X.X% data dynamics generation equipment, terms

First and of industry to joint X% decreased in a were to from $XXX quarter record impact the of Industry compared first ventures, a revenues demand sales weaker rupee. quarter lower year-over-year million, a demand ago. a XX% due the ago, truck India, truck the including reduction year year

XX% XX% year. Our to the last was quarter compared market share in

Now, let markets. and end me outlook provide for then XXXX overall regions individual our comment and on

industry continue We to our compared to up forecast trucks of XXX,XXX to units. for in heavy-duty guidance prior our be XXX,XXX and XXXX of up to production We've units, total flat North above to X%. for America forecast X% XXXX company raised revenues

will rates past the levels, our the truck has and industry build remains the historically quarter. in over While high guidance it backlog few months the fourth projects at declined moderate

XX%, our we are be quarter. expect our to be the our market, XX% and market range to guidance. share unchanged X% units, In we our year-over-year, last expect unchanged view of prior from be to We up XX% share production truck the market our industry and in medium-duty between to to for XXX,XXX forecast increasing XX%, from

We pickup our strong joint unchanged to flat a to China, to domestic we for and including compared in ventures XXXX for XXXX. expect very XXXX flat America trucks our expectations be continue months from engine three shipments in expect North In ago. be revenues, to

In million with units, and medium- truck light-duty line XX% guidance. representing our reduction market, the continue expect as We from heavy-duty are previous a to demand outlook a our decline in for demand XXXX. in maintaining X% market X.X we truck

ventures, record In to to We the X% of achieved generation our investment. X% infrastructure share total We guidance levels in decline sales demand our experienced the XX% in strong quarter, expect but be share We line market anticipate second continued grow the to down growth the to to with India, prior strong the XX%, we industry of X% elections half in truck range XXXX. we in first of in range be we do to lower power all as construction XX%; to the the in continue to in of from to to excavators place, expect industry than anticipate XXXX. trucks light-duty, guidance. project second for expect We revenue, our given XX%, XXXX XXXX. both prior market X%, record the to This of now flat first levels to take in joint in our medium-and -- compares lower be expect demand due heavy-duty including in quarter. and and the be XX%

in project Ford XX% be Brazil markets, generation truck and of power in increased second XXXX. demand planned offset production exiting In will We increase increased impact growth We to the our Brazil by April to with helped demand, in market. of construction are the revenues to the flat by of half Bharat in Stage ahead truck Brazil, XXXX. forecast forecasting of be standards VI truck continue we implementation

global We expect engine were forecast high flat. our previous to down shipments horsepower our to be X% compared

decline and We continue to to for expect oil gas demand by XX%. new engines

in in stable developing to remained engines gas However, oil deterioration decline will generation equipment X% in outlook we new to is for by is Demand seen expectation investment onshore increased ago and assets. anticipate to North three by North America Basin. equipment decline quarter in Permian in continue This and and orders in seeing XX% flat geographies mining sales applications. for was our increased expect the with the China, now in increase XX% first in lower and for America sales XXXX. offset which volumes demand months our we power certain for we've Demand compared

in in prime We power of RV improved military operational applications outlook are sales up backup maintaining strong offset our market, power center guidance with and applications demand generation previous in revenue demand by to X% China markets, in America, due costs for revenue In to in range lower in Europe. we lower markets power offsetting power the of be our summary, material lower EBITDA points, lower increasing North now to and data will XX%. compared large by the forecast markets our XX increased Growth while year to performance. revenue are in truck basis be sets expecting flat global in U.S., generator and generation

and operating resulted quarter quarter in both revenues first to quality years. plan XX% year. we've execution or XX% flow our During cash invest costs shareholders flow best operating with returned in of strong the return for profit record time. in and five converted the cash in to first the repurchases, the our form to ensure million the operating of the performance flow quarter, in future strong $XXX to Strong cash continue to We and of performance lowered EBITDA dividends shareholders share over in cash, and consistent

Now, turn it to let me over Mark.

Mark Smith

improved the Thank for you, strong financial a in morning, our with on our the first of I'll everyone. then of start good comment quarter performance and drivers summary Tom; and quick year. the outlook

Earnings billion, while First quarter sales in as movements, $X Currency from of a international increased EBITDA, interest, revenues a before dollar, sales America depreciation record EBITDA XX.X% ago, reaching billion by and primarily X% exceeding a rose revenues amortization tax, of $X million year-over-year. by revenues a X%. impacted negatively quarter. result North year or the up X%. $XXX stronger grew XX%, and for U.S. of

XX.X% joint year-over-year, the system of for $XXX sales points to again dollars gross more the offset million positive that inflation. Gross cost higher rate gross metal growth expense in EBITDA earnings. system which basis lower of driven Growth and of of of an venture of margin impact, impact the points, reduction by margin other tariffs year's Excluding excluding million sales the year, impact, of due initiatives income, the pricing, market engine campaign. basis higher stronger last all than charge volumes margins, $X.X of by or engine negative $XXX by XX outpaced incurred more last XXX leverage benefits or campaign or offset improved operating increased than billion and the

Emissions India, from was research and the increased Our as driven Other by benefit a to percent that selling, X due in reporting. $XX and by in XX.X% in development effective XX.X% and meet China truck was XXXX. in statement non-qualified in the to Power by investments of other in product of sales with products the to venture gains gains million $XX administrative year-over-year, launch of the mark-to-market and million year-over-year compared mark-to-market primarily million first to Standard XX.X%. tax increased income income with by the million in declined increase associated of Joint $XX demand our national segment the expenses engine plans. $XXX recorded regulations. XX.X% cost The of China an $XX dollars quarter Electrified income of in underpin new income of majority new The elimination on rate components increased were driven new the on-highway The million and in weaker our quarter the segments. million, $XX the but declined

flow last XX.X% from of up quarter, pace per XX.X%, and an activity were year our discrete items, Excluding share months. stronger compared earnings, the from repurchase taxes to the the year, cash the earnings tax $XXX expansion of a outflow quarter year $X.XX reduced resulting ago. the of combination slower XX payout working and over an a the a $XXX million lower was compensation. in rate of was ago, inflow capital down stronger Operating of share first Diluted share positive due from past to $X.XX variable million earnings, the lower in to count due

of in of comment guidance to annual I variable year. sales cash The earned seasonality the accrued the first year the the due for XXXX. now will and prior and revised of quarter compensation operating on our is the typically weakest for flow, payment

X% X%, of a Engine the revenues segment, little expect full For to to up we our X% flat growth. year guidance to prior-year up from be

performance lower in of We to have and our guidance our by material XX% forecast operations be margins compared range previous for stronger driven supply our the raised XX.X%, to primarily chain to EBITDA operating XX.X% XX.X% of in manufacturing and to costs.

of to forecast the with compared to segment North and our strengthened to a now outlook up X% X% stronger Distribution expect in previous flat Our guidance America. for of we revenues growth X%

to guidance X.X% X% the of for to cost strong revenues of range a outlook to control. and as to higher margins our of result in prior compared raising in are our X%, be X.X% distribution EBITDA We

components from For XXXX, previous we X% our unchanged expect guidance. revenue increase to X%, to

our outlook, and for be We be our an margins costs. be to XX% efficiencies of XX.X% power result have from raised Systems of our has equipment, to sales, range operational lower a margins material revenues to now prior to for improved again, in are to projected sales forecast Power of projection prior as of the to expect about of our generation down for up XX%, X% by to as EBITDA XX.XX%, a of driven to We to the compared range million guidance guidance as million, to in expect segments the described. guidance XX% targeted X% X%, EBITDA still Tom XX.XX% down to The to previous development revenues from of our make expense individual primarily unchanged net projections prior from these XX%, changes be we X% we $XXX Electrified is commercial new continue up of to we product the impact of segment the total In to XX%, Power outlook. the due launch. net individual toward of segment, weaker to and advanced sales investments in $XXX -- company to net a flat the impact guidance. forecast XXXX, that continue

discrete future to our our exceed higher to is expenditures expected year effective project $XXX unchanged ago. million $XXX We be operating items three to and quarters. in approximately for EBITDA months for the and be at expense all guidance XX.X% between will compared This due raising are XX.XX% primarily quarter, benefit first We expected material our be supply improved from more offset reductions midpoint. a forecast margins to our XX.XX% in performance little to of than expected variable flow tariff manufacturing of XX% year. rate capital lower and XXXX excluding the range tax compensation currently XX% for our from the in of cash cost in previous chain million which to Full increase the than any is are to sales and company of XXXX,

the this and of to and cash year. to and returned Tom shareholders quarter flow shareholders to $XXX three summarize, return for To the delivered ago. raised as earnings we year expect we through operating mentioned, first have first our share quarter, we in a projected dividends million months repurchase As outlook strong XX%

clear products cycle-over-cycle We and flow, services delivering first on shareholders, continuing quartile and new ROIC, to improving operating in to all while profitable to focus have cash our returning deliver a cash earnings, increasing future growth. invest

turn Q&A. over move Now, let Tom to to before we it me back

Tom Linebarger

and is and we standards. and U.S. certification are and with certification and technologies we compliance want implementing completing which XXXX the for emission with leading Cummins highlight review press voluntary Before are emissions. our in questions, action our I we that RAM night, certification This take reviewing release a trucks. announced and to a leader last EPA conversations quickly XXXX processes. with committed we XXXX that regarding ongoing the to be process compliance to and follows a to in engines the that This to developing CARB customers issued products provide implementing thorough independent recommendations improve and strives lower the

goals. We take with It future to in any and current regulators that to financial will all governments have too remains our any Cummins meet a to what history these standards actions determine to early long emission if committed and we working be is impact. of achieve might delivering ensuring review its our customers. to value and products and if there

James. me to back Now, it let turn

James Hopkins

and Thank consideration for others now ready yourselves first And please question. our you that Tom. I the Operator, ask we're limit have one if you, call, additional questions, you rejoin question to on would Out of related the queue. follow-up. a to

Operator

from Our Credit Instructions] you. first with Cook Jamie [Operator comes Thank question Suisse.

Your now open. line is

Jamie Cook

this confidence way much this concern can't certification understanding an XXXX? you Tom, this guess emissions -- margins or past to to that whether frame the Is obviously better my my on earnings give Power there just -- year, a of the more relates are first first issues is have the given way there so around the not to process, will understand could year-over-year back past couple overhang -- question. I have question I in just disappointing. little over going be that half any be the And ability when line two a potentially demand of for understanding you but quarters the relative guys you. Systems, or would we've is the I that's improvement had in outlook? is you top some a impact there to market -- of the or is but comment weaker, second your color and quarters then question, stock. guess achieve the Thank end can margin on any past temporary this

Tom Linebarger

Rich one. Okay. will this I Maybe, on and tag

to with any to Just those doing about us regard that we're around ones, and right get quantify we now, with we we'll our and processes. quantify frustrating compare too. questions just timeframe things. to bottom not sense doing, the say way questions your I previous the to we're a all put it the or find And and don't much it be it don't to because examine And, frustrating review it, makes the recognize to it that able a urgency think again, we or to of compliance we clear to about out to will review to work it's got it's and have certification

we And review. to So will we of that to those we as working quickly with result be be a implement review. complete that to also this changes will want working then, urgency

a try quickly can't we'll box as So quickly as do quantify help as it we we create can. around and as we'll we'll can, can, people it quickly as to We we just work today. as

Rich Freeland

on XX% -- and is incrementals on from look just Systems, that this what gain. and Rich. And going from took a over were we is XXXX, to Power up the we with deliver quick saw the first, XXXX XX% you took to EBITDA as reminder up good sales Jamie, to we and that the we're said Okay. the had that we

that still continue is restructuring those the getting there the EBITDA will that going today. of we to sales, your looks And implies flat those minus we're to -- X%. with with guidance As But kind benefits X% of look up question, We be be year, some again of confidence sales we're to to now in work, plus this to we'll sales. guided flat. the we Yes, taken the it flat that?

despite business into fairly and built fact tariffs that And confidence delivering guidance. is hit there's in so, impact by part that this that of this gets hard -- the into the that's built

So flat to the XXXX. continue but expand relatively sales, in margins

Operator

And Duignan Morgan. Ann from our you. with next Thank question JP comes

line Your is open. now

Ann Duignan

explain to it the that again, the back just just doing what little has in press color And been is maybe process questioned, what just having sorry, you're release could bit you to and specifically more a and review?

Tom Linebarger

engine again, -- in we Ram, questions we that got are Well, the the XXXX very for we -- seriously. product for we introduction lot new and a of Dodge the our applied EPA for certification, we from take questions

we is do and we processes, what independent and see those quickly. change our so launching And and to to wanted we compliance make emissions if anything without need changes review have so if

So we're that's committed to what do.

those We with work cooperatively will agencies.

doing compliance that's we're other about history are do that focused we'll on. or long of review I what today. of process, a that, say results That's to as but soon the about what things about have as will, say really our And, continue emissions We again, can it all that. I I more can

Ann Duignan

it then And sure just all interpreting correctly. make want I I'm to

own best us So in you and make environments, the you're do that this is this? doing testing the -- right going interpret you're for all and way this self-certifying to to basically your sure the the in that outside back and from just is lab is right tests

Tom Linebarger

valuation, us testing. they the EPA the do review independent CARB with then certification from to XXXX and the certification who And do, similar own then the data XXXX and own of our They always EPA. independent their do we the kind that do and conditional data test the in we those and a of CARB, provide We sometimes evaluations to they and submit for engines. have RAM engines, XXXX certification provide we from case

of so are both review. under still those And

Ann Duignan

So, there will is you no stop engines, have shipping there? risk is that to

Tom Linebarger

Again, because cert, the a of if we stop cert they from right those the meet don't to CARB of and revoke conditions have make us are conditional certifications. there a

Ann Duignan

one. just the but one I Q&A take to on Okay. wanted other this, whole up

bit that were rest you you was said Systems Power of down a appreciated? think that -- expand that be X%, I world could down would little on just if

Mark Smith

the Europe when look geography. down up, It's in and you first that's by principally the America of Europe weakness quarter. were area North

Rich Freeland

We in one-time. they continue this had prime power some not last big Europe that are did to year on projects year,

Operator

you. Thank Goldman our next Sachs. And Revich from question with comes Jerry

line now is Your open.

Jerry Revich

is if the the generation platform discussions your folks, investment wondering, or quantitatively I'm on light-and some integrated vertically qualitatively the thoughts the the helpful? you of -- diesel out playing opportunity updated I give for opportunity are versus medium-duty extent what's you to diesel have players the incremental You globally? folks? front electric. is? set us how set for and How be that some you going guess, willing for just What's share us that with would bid lower you're next presumably that

Tom Linebarger

Good question, Jerry.

out many natural our to customers, vehicles more need So controls, then are view, in autonomous obviously from investments got and gas the rationalize a They've investments trying well other make. diesel to so as all of in of course et figure engine potentially cetera, trucks, electrification make platforms. to and as technologies view, and to them how global point of global OEM of point they

that it's is been And for that than requirements single is every provide that us. -- from because full think them just single stronger them, to to we to in want many and both OEMs since OEMs every investments. So make. to It's platform, a own that's that make help of with powertrain we partner their now investment started ever, powertrains value and to operating their help proposition we and so can make powertrain can our lot that so of XXX specialize in sort of don't we if investment to a we years proposition think ago,

well we feel may like in electrified So as that And, were as not with I two we're Each a but I the maybe out because that but providing now, having and natural one important think most We if all. or answer as said priority on figure gas. that, OEM previous again, like well clear-cut for major world. conversations that their set are to strategic where as as every powertrain calls, OEM it's be is going not there again don't diesel, every OEM. is

out, I where geographically, in which but will well their as figure platform to provide order platform. make strategy sub-systems they whichever entire think each vehicle use how to own need want do try that carry and their which and I that platform, them out hey, to where Cummins, through need to as be will comes they able to we

think proposition than in and was stronger we So stronger It even that going past. forward the is it

what to will out, that's playing again, so, take out time seems the be we're to although And some that I'm for play investing for way. and convinced and ready all they

Jerry Revich

I'm last can Tom, about how or that a from on point before common any it visibility Is you color market XXXX, And, can there? a you I event actual we're and additional long us mean, type from talking higher XXXX just expand standpoint? standpoint. timing topline or platforms if on share give wondering firm

Tom Linebarger

so Jerry, which because know some very for for timeframe, Yes. this there's or these in that make, platform all and to investments I away, are people the but decisions two. to starting in far decisions year sounds made big XXXX Europe were means U.S. XXXX next

those kind because a the and people making because they they will making decisions talked people need we'll out, have then some to after everybody be soon, we about India China, to again there, to think those is to about number decision NSVI. pretty sooner share investments. I of ways our a little again India and China and don't a China investments, We bit will are And make platform on are impact not India a and think, want again, gain but in choices, will if make So between U.S. in in want the we already that, I the that in coming little opportunities year what then suit. decisions XXXX, next those think Europe, choices that OEMs and and first, follow make of see next platform as

Operator

ISI. And from you. question our next with David Thank Raso comes Evercore

now is Your open. line

David Raso

production sales rest going sort of year-over-year fourth exiting the North especially you Just Analyst guidance figure you're way American trying to the here, out and implying year the Meeting, setup flat the laid has the basically out, the implying it's about you're made best having, quarter of truck down. into assume year comment November the you're the

to are April, could the try I help just the just the only in were up sales that -- the rest the eliminate fourth the if detail bit start year, if meeting then we and the to you should cycle it's and quarter, a us that know you're end revenues the maybe quarters but in of November are case, of the next Company sense for of to I'm the of and two trying a is the meeting? quarter, what is So bit, issues get fourth how about for in that going more the perform thinking about idea in sort cadence down; the the could

Rich Freeland

This David. Rich. is Hey,

half a Let of me driven take the first that's our of And year. of North guidance is kind the that full which truck. for lot of American one, the view by

coming quarter, is backlog right and But, think assumed. we've what the we that'll say just continue I'll now, a XX,XXX, effect down XX,XXX in about QX. -- so And

peak So The XXX,XXX units, to QX going no into over remain will down there's from momentum now. letup to XXX,XXX stronger. QX. I a roughly QX going it's mean, from of

this later come assuming be we're the don't basically we're financial so, could that's the in what to drove forecast heavy-duty we and in heavier And some built if in the there toward here. the start in reduction of what -- reduction potentially -- orders truck most in is all fall year,

my least, another is require at pretty calling what month I see So through orders levels. probably kind summer think the of will summer going this seeing low we're heavy-duty. And some that's in not we're XX,XXX a in this we'll it above that but opinion, that up yet, in

back. will later this in probably so, it the if comes year, decided be And

As always, we're for prepared every scenario.

And so, got orders the capacity longer run in down. own come it should this we've scenario got our year. continue that if we clearly to If to in it the later the continues, goes

Tom Linebarger

what cycle of I we kind so to truck American be of market. think we're going really the know is what to are regard increasing have we we with conference, the -- visibility North investor seeing in. Again, David, now don't

So what to understand we'll everything else. but kind of that, happens what

there's uncertainty think that. I lot a about of still

cycle, we'll we that had the did better to kind that where ensuring in in or can view, that in But, last end have little year count bit you see understand any we we better start I the Cummins so of cycle than a the that in between think what maybe case, we it's cycle. last we we and we of does year of a the year. will in to early economy now on kind is. emerge from more visibility be again, next hope the up so, better U.S. that that up what and this again, stronger, a We cycle of fall we And think, is downturn have then, I that closer. do this about begin economic at as us the to And, time get had

in have transitions they around on early couple already we years and updated that also So to in and our ago, some changes that and talk grow then an for to in lot what the the about views occurring will what's and of investors Jerry grow do the asked, which how today are some where try and us share we'll we're technology a the had be to but update more others our engaged think we'll world those fast questions opportunities occurring. electrification a given are look some where about of operating planning process, we we'll landscape these to of happening

you some So in be cover, we have that course, and will We're, input but we do going and those open so talking talk will the topics are we we to where about, definitely think stronger topics. are we to will those some the begun on but things talk if are what cycle, of of things. that to about of one it the emerge about we're other

David Raso

I discuss, Yes. earnings this to down it quarter what deal it, meeting, to try up implying a opportunities microcosm we try interested with the is is first meetings to address. hold what in be to to North the America fourth going going the a is sort fourth year assume, other quarter the the of I is truck a of just offset analyst and how you're right, going mean to of quarter is that way

revenues want figure the appears but are two the quarters sure make don't here how EPS and next versus sort give quarter down baseline you know truck just damage opportunities to is America have. other guidance, do trying is it you I growth. So we're North out that's down to I idea set, quarterly much fourth of the

So...

Mark Smith

new David, for of that heavy-duty to Tom's points. XX% orders engines context, put that less to for market truck are know in the the our revenues, you Just than earlier

So distribution. we've aftermarket, growing going got business

in that that on. will assumptions the that not I see we a play So Day think that environment and interest it of Analyst it's -- we just in one time on the certainly quarter, that at but put we just set context tried got will we're to we of the

David Raso

Yes. the in I a of last last look your sales year, bit. earnings you the implying your the the year, basically the year, basically you at mean to nine if your from the little rest year-over-year you're are exclude months down comment, implying of flat, drag in last if are flat you're warranty but

be kind discussion microcosm about the So meeting. at it's whole what of interesting, of will that again, just an

your So comment. I appreciate

Mark Smith

margins. yes, good Yes. Reduction, for Thanks. that's the

Operator

Thank you.

from Leiker with comes next David question Baird. Our

is line Your now open.

Joe Vruwink

Hi. or bit question. up focus of kind the quarters still generate critical is the million contemplate investment is consistent my loss running several to quarter. Electrified a pretty of you programs for that, are accelerate that into are mass number? remainder front-loaded that in revenue the engineering guidance term that maybe set and near behind taking year, building Thanks a to where rate $XX Vruwink you has for been The now, wanted for David. This to million, on that seems I $XX Power Joe said for

Tom Linebarger

to both. the it's mean investing QX. are -- that good of to we commercial little commercial every flat rate a of We the a not And a year-by-year is it's it's and ramping sort are get number, kind to up of invest faster in number, of not than kind of application. kind that two each set is by we a launch could that, the into big definitely go products the our a launch the a It's plan varying ramp to year right question. but one is up commercially that adoption reason commercial us It's way I given it's of, launch or markets, applications, adoption. feeling

QX, There up those launching a in we're So is that's a little because into QX. kind of our bit base plan of numbers. and built QX ramp in

So there's -- that's that.

is engineering demand supply still we to an our where -- our an of though It's lot not capability capability we're of to trying some we're build guess, and are capabilities. of there's where electrified There's as much build development on We a Again, hiring no power our as you have acquisitions question department. more. lot area trying to area that there with that both trying build and still. that a

Just like begin as of sales we will toward launch through commercially real end this what mean the year, quarter. all you we kind though, that think first does will of commercial

this. because units, doing to is How much make just It's significant a many that's today or want is, Everybody be to XX expectation X,XXX, wants everyone's that learning charge ramp will our to remains figuring this, the operate. projections lead is a use own the to -- slow. out not people X business profitable money in be there interest I how going how Our economics is of XX, orders seen. that them, result how in electrified are that I and power work, can kind and reasonably can

than a would, ramp up engine So new be we're for our also we we the or like diesel feel a something that we recognize market, replacement that. driving have to going their, but slower this definitely in market, we product need like on to seeding the

of So got to that's going curve the in and and business. we've the just curve learning part be investment that

Joe Vruwink

maybe presumably your talking do you of can topic, you through items that that we're about think trough be higher XXXX in of control on power declines are earnings of in think for some that or that XXXX you in could XXXX? a equation have you the drivers visibility when which on walk then electrified now, related earnings at somewhat part And is trough, higher smaller

Tom Linebarger

in trough XXXX. at be not Yes. the We may

productivity dependent quality when down a for we our -- we're of course, and on gains, period lower items cost goes so balance Of we a demand continual on focus just in to But happens the it's markets. what you're balancing list of and the accelerate weaker got which to a prioritization. tend control, what yes, improvements act of

then So list to lower on about the buy confidence and, enjoying a on over cycles time well, all then within been all a of taxes hopefully several we're as the through which of growing the trough with gives business We've us trough a things. of we've help a shares, got EPS we've back should healthy pre-tax which got course, aftermarket basis. of of basis, growing and, continuing course, earnings last we're cycle

Mark Smith

what And I think this was is a David bit about. asking

to where that pulling We X long-term will to out have so that us times to through key don't -- how be working that about, our our done this us investor most cost things able Again, how reduction management cycles of as it and what conference in give visibility we're do well. execute get cost between figure are team some on. of the find in to lot and you better from figure a X that's that out to of to stronger try investments somewhere pushing hurt different and can we to downturn emerge the allow the

American As cycle want. downturn have a know. will we think not markets I and forecasting I'm how started given just either, are a better doing. across the do November don't conference out increasing in seeing could opportunities what we last mentioned and cost when of XXXX know other the cost year, look hire now North and to chance things since year, peak the that a process of and don't I've we markets as we control of itself. all American truck also investor be kind reasonable to And our the and so number about then me can to did be this an want and talking annual actually chance market North seems we plans, There's that to the a foresee we'll as at that that specific I really next that view do year we're will we that able what do sometime for we see begin I there want to mentioned this operating we David, with we this about we to

Operator

Thank you.

Steven comes with Our question from next Fisher UBS.

Your is now line open.

Steven Fisher

the So been while in of a a data but for strong pretty times prepared you did mention market remarks. the center has centers number now, data

just you cycle? what quarter, have there's maybe think and market share curious if we maybe So there where visibility are in gains something some what's you that different ongoing about the seeing you're this to and strength

Tom Linebarger

power RV generally market American gen hasn't strong internationally, good so as North lot had as or think a of strong, to aren't Steve, say, seen really been clearly in reason in The not strong that question, It's been I is other you in segment the markets is because, as we've data where one as generally much previous center kind a upturns. way, where the notable segment, the but it about been and speaking run turn a down segments a it's exception. good we've you up of hear starting other has every market either have

hear the that. about of reasons lot one a that's So you

lot business provide of the of Our kind our center business relationships support we there can in strengthened product our that customers Tony and with line share, in runs we make both distribution efforts now need. been really have that PowerGen they a the the customer have segment, to and in also sure we that data consolidating where our

countries growing seeing Europe. customers center know in a and while strong. So Where we not don't it's still that the strong a some and the that, people's while real have last. do long are cycle where we one market. outside worry for positives that so know well that been demand about I growth really do like U.S. -- we a been others see that the thing for kind and and -- data of wondering we and are it. as of that in but It's been is of of in worry going we far, the We our But, how position we're

centers. China, some recently quarters So for strong data with we've example, seen

India expect in road. We the same the down

we are we things adding the in have these the of opportunity that our and data some already weaken countries there are have some of if our position So since means, seeing centers and developing markets grow in, we sales do to, strong offset that difference. historical to there, a potentially

we guess regions. active of in those as So, are you both

Mark Smith

the last is quarter. momentum was same as The it

Tom Linebarger

Yes. of No change right. patterns, year. this for Yes, order in

Steven Fisher

And and there, color of I what then, oil on there the Got balance for you're it. year discipline from then in the give and could the assumed we're just the customers similarly I that hearing customers capital more Permian. is mining your guess kind you on maybe, just know the you've hearing us don't outlook a forward? side, the going from of And gas what if and little

Rich Freeland

it Yes. you right, and the got strong. gas, exactly On oil capital just discipline is

we We had -- got a year. we run. got So nice some orders last

I we're I any between see would make change China. of exception An think of balance on in don't we're down for XX% is in I now that XXXX. what is saying sign that and the

China market the of so And there the nice is size share we're a market there. getting and developing

up, one would movement it be China to is to So ill said attention any and if be we because better. will that's looks pay going there

of the into saying softened the compared little under I activity decent, especially product, to The think be conversations what's at if we up looks things, On that year going last on going about year, some up look new to X% coal number equipment of mining and and recent we I engines new have and utilization be is pressure, the we're is a the side, a rebuilds going do, new but one think in couple okay. this rebuild to going Indonesia.

So, it would in bit it's forward on again, going we're X% of that short term. one, say, a got projecting little I the With up. pressure

Operator

Thank you.

Our next Wertheimer question comes Melius Research. with from Rob

line open. Your now is

Rob Wertheimer

and developing the potential market Rich. I mean, cetera, a fracking you successful testing size of operations, on China, oil us broadening could characterize Yes, A whether for maybe on doing of it? is in of we're there's out hi, whether the follow-up et market and how that still gas, or

Tom Linebarger

it onshore. you don't Okay. pretty follow-up this and phenomenon, all where in fracking. is in actually we have a a But fracking we I can on. the quantification It it's turn horizontal recent It's today, utilizing for is order. the capability

not looking on to of as -- back knowledge China, say came good about one conversation just this from and excitement needs I the would the the in our say, forward So, would the this as that positive. be. I is it is momentum I

this. on I'd revised And say, haven't are long our guidance that, and be that paying we we're but legs so, the to to that's on one attention and how going see

Rob Wertheimer

then Great. much say looks able how the And PowerGen what market in PowerGen, like? And data or are? centers then rest are how currently important the you of to

Rich Freeland

center and RVs our in or XX% business is about about around Data side in X%. of the around PowerGen X%

Rob Wertheimer

then... pie diverse Exactly, so a it's and fairly

Rich Freeland

[indiscernible]

Rob Wertheimer

Sorry?

Rich Freeland

You have it right.

Tom Linebarger

Yes, diverse a it's pie.

Rob Wertheimer

or a of I'm on is? I end are sorry. strong with how to cycle of are And we then the run-up of business, just plugging growth? your the in feeling at just we the rest in along kind the mean, really

Tom Linebarger

a Part what it's just in lot utility it's cycle question as again, weaker, be. we're this are that, versus than I time Yes, stronger with as be great a of the because I used struggling not little we growth the look the bit. if PowerGen a mean, and we've it's cycle, many past. one at last for to to they countries seen robust in residuals know many,

cycle. rates previous We the were they positive. also in were than were moderate know that They economic growth more

expect do ratios So, we something to that the has with residual that we see.

where that think bills. out, developing with a really don't but a doing rate countries interesting up they're statistics, they are those explain really countries everything. doing keeping better of especially are also all We But electricity at are growing job

data general. more in I I consistently characterize is kind good, the it's this good our domestically, position it, least way at we'd said in of been guess, it We've so, market XX% but growing it's before that recently. it, it's the And been been internationally been center good and only growing is consistently

because they total The a products So pretty buy larger percentage of and standby we is basic in part. sophisticated It that though tend value-added, and of still pretty that to do business the installation. a I power just to usually holds just the we longer as sophisticated have and plugging don't of from put like we're But like really along we robust the we it cycles about up would and have that. just -- much know some downturns don't we not things potential having as feel prior it's given category. expected how tends conversations

Operator

question Thank our with Research. from you. comes And Uhlman next Adam Cleveland

line Your now open. is

Adam Uhlman

opportunity you to NSVI on of implementation early I you has have from we can BSVI a shifted think could and in in engines? look at any back update standards the total the on how component if don't side know content there remind much then and us the and China, would any go helpful? -- if the has legislation, the be And in China that you India, standards incremental all,

James Hopkins

James here. Hi, Adam, is this

So there. expectations shifted haven't really

thing the implementation So rest start implementation then kind that Tier and to a China on in cities beginning in the and XXXX and in the that's Then India what through April one-shot country. will East there. in the looking we're of of X your spread in of India XXXX, we're kind of of XXXX at in expecting is major Coast

big we've So being $XXX those revenue there of maturity. kind two talked the are the about opportunity million perspective, drivers. at a From around

so standards. XXXX turbochargers both those to a on And more NSVI bit we've and complex little that those in turbos markets. when new kind the more kind complete a have within little component the would of the to And primarily timeframe then meet on revenue of be that with get done segments of in the bit transition after-treatment

Rich Freeland

a just little around Maybe technical more there.

India slower -- And different. is in into V few a there kind midyear a be for as We're going to is the turn volumes step I then really of good XX,XXX, right right NSVI we municipalities, than and positioned of business On going now Euro XXXX. the up which XXXX, XXXX, thought. saying small we're that's so think us little with well product there. into pretty another mid-year piece, as full China and

year happen changing to of year next broad of data next some in a I probably think it's that look standard this of we'll going year hold. pre-buy and fact, one going to type April is solid in anticipation see April that a of and, in yet

Adam Uhlman

talk you collecting the switching the a about your from then What's in here North months. could And softened seeing the medium-duty kind the with America, you're recent -- back general you've orders been customers? truck feedback have to industry where what that bit of

Tom Linebarger

that kind have row market been top Absent at. quarters a We've the three we but there, growth market. are just very this a diversified and production we a resilient diversified customer just Yes. It's such a and base. with got of pretty has looking year-over-year eight in in

size guidance just up we've because diversity of this time, for if in this taken So, on again, feels -- look actually over our year one cyclical and that you it's the market less much market. the

backlogs levels, bullish stable looks strong good units we -- we'll side. at something pretty looking that So market going got nice big pretty one in I a remaining a level, think it's a is forward. like this backlog, but historic I'm don't that really backlog, a which at XX,XXX we generally from have stable

Operator

Bank And Ross Thank from America. next with our you. question comes Gilardi of

open. is line Your now

Ross Gilardi

seeing about Hey. is are though like the mean, I a little coming? you but it's where of I to going you the pricing in-house question, competition how to early that? I else realize, could have the is is even And when it of follow-up more how year? doing bit talk a just customers answer to commercialize of the I powertrain And a Tom, and that electrified is was competition where evolving, just kind lot you work, wondering if heaviest toward evolving? be end

Tom Linebarger

of good a things. range a It's question, was That Ross.

in them other The what in Europe number in jurisdictions like are the the there of is just on power power Proterra started they New So the to start-ups, a would New you a that kind number of working that OEMs and seeing their get of means probably for then early and are supply units, where Flyer to other example be have game they equivalence who in are essentially U.S., people companies are market on couldn't to electrified working companies example, wanted they some own. own. wanted early and Good Flyer. enough there electrified what because didn't do started their in

diversified pretty So there is a base.

end I what -- operator, kind think and who and And BYD's Chinese buses decide how so will And are already as customers, purchases sells want the market makes it. they to of customers, operate, buses, and want to how operators begins then batteries. other have Proterra they there supplier, big of

the already it market, is competition of BYD. coming in there price Chinese from it from most of So most

to companies that's begin into that believe, what's very risk position, they the recover operator that they're they're in make I figure of it a to take not full depends the and of really risk, Europe operating very because own, volume on suppliers, build So to to settle the They their the it Cummins not many. trying products, lot think will wants so want engineering most on cost to other so today. just New taken the Proterra, how more associated out aggressively the go Flyer's BYD about -- to they Yes, bus are of suppliers their selling more many, where the strategy. just very as are buses. a are BYD, price money whether -- market they and tends in platforms. occurring buyer, market to and like trying build market, with different it's tend selling and spending really

they batteries own longer So offer in what's lot Daimler, and useful -- a going I with can when their live think -- on you'll how depend do price and to a no and just the them what settle there they're big really see you companies it's will bus. to long start like when enter to market, on stability the begin more of

operate like so now last buses now, diesel XX-year right right normally life cycles, years. operate about that's XX-year with they won't engines cycles, but batteries So, that's to and how what continue, they'd XX

and all how around do its figure is lot we're final them you what mid-cycle? you units. out days. the stuff of trying do Again, therefore That's to reuse early drive price change really is, going How that recycle how cost a there them, in the of the them? do So to you

just -- trying figure level. I that just all us kind say So to of would I are at of out some

Ross Gilardi

any the just then, AMT tell with And combination WABCO for around Cummins ZFs else on you and us ZF And do in thoughts compete world? the you Eaton and where could implications space?

Tom Linebarger

Yes.

the I with I but in are the places most We global China. some company. the other. -- see footprint see or them compete biggest in China cooperate say, Europe think, in and mean, autonomous. So places we India. that's of see part we the been the are kind the say world. them less, much pretty and give everywhere. places I'd a historically them They stronger global in them of We We in other a are there are than them I got saw I'd does and combination two, has bigger this. of two the they everywhere

role to steering China, autonomous that, additions in I trying but would So say, how it's can autonomous minor are brakes won't primarily maybe and in -- addition. that for not just have like trucks say, I'd is AMT it it's countries play. has truck not more out we putting so, offer in some significant what that they that developing an to AMTs, ZF they significant systems. together figure already portfolio and a It's a they they had a WABCO play controls and as and

James Hopkins

Great, thank you everybody.

we're Cummins questions think at hour. the in of afternoon. this I'll end Thank interest that Appreciate for your you. I with be and morning, our available this

Operator

today's thank gentlemen, This Everyone day. and program may participation you concludes Ladies does and conference. for great a disconnect. your in all have your you

Cummins (CMI) 30 Apr 192019 Q1 Earnings call transcript